In the past it was extremely challenging to open a successful business without a massive amount of investment/capital. With the advanced technologies and innovations accessible today, new organizations (startups) pop up every day all around the world. Unfortunately, for many of these new businesses, success is not in the cards. As a matter of fact, over 50 percent of them will go out of business by the fifth year and over 70 percent by the tenth year.
There is, of course, a wide variety of reasons why this occurs. To see the top 20 reasons startups fail according to a CBInsights report, click here.
Here are the Top 5 causes of small business failure:
- No market need: 42 percent
- Ran out of cash: 29 percent
- Not the right team: 23 percent
- Beaten by competitors: 19 percent
- Pricing/cost Issues: 18 percent
Many times, unexpected things happen. Things that may be out of one’s control. Whether it can be blamed on an overall poor business plan or strategy, insufficient research, or bad luck, most startups are destined to struggle, and the vast majority won’t make it at all. So, what if there are areas that can be controlled? What if we look at the list above and focus in on point number three, “Not hiring the right team,” and taking it a step further to include the right leadership? Despite having a great business model, if businesses are not achieving their full potential, it can often be traced back to simply having the wrong people in place.
According to the article Why Leadership Is Not Acknowledged in the Startup Industry, “The role and personality of the leaders is one of the most important determinant of the success of a company, besides the business idea.” Having a well-thought-out strategy for recruiting key employees is crucial in establishing success for any new business—which is especially true for startups.
Consider this, as the CEO or Owner of a startup: You have the perfect idea, product, or solution to fill a market need. You’ve agonized and worked tirelessly to develop a strategic business plan. You’ve essentially got all your ducks in a row, but you’ve really not put a whole lot of thought into your recruitment strategy, even though these will be the people that you are trusting to build your business and ultimately make it a success! Now, reflecting back on that list of reasons why startups fail: Nearly ¼ can be solely attributed to this error. And logically, this point (lack of the right team) will inevitably spill over and affect ALL the areas causing failure. Hiring the wrong people for the wrong tasks—especially at the management level—can bury a startup before it even has a chance to succeed.
Never lose sight that this is one area that is completely fixable. No business can succeed without a great team in place, period. Startups must be deliberate when hiring. After all, in a small company, every single position/person matters even more. Hiring mistakes are magnified. Business owners must stop underestimating the economic damage from weak recruiting. Dr. John Sullivan, professor, author, corporate speaker, and advisor and internationally known HR thought-leader eloquently stated, “When any position goes unfilled for a significant period of time or when a new hire in any position is weak, the negative impact reverberates throughout the organization. Most startup leaders fail to quantify (in dollars) the impact of weak recruiting on business results, new product development, organizational growth, and on gaining future funding.”
From the very beginning, companies need to decide on short- and long-term hiring strategies. Creating structured processes for recruiting, interviewing, and hiring is a crucial function of ensuring the right team is hired. And then setting realistic budgets and resources must be allocated to make those processes work. This is obviously not an easy task. It requires a great deal of time (which most startup owners do not have a lot of, being spread so thin across all areas of the business). That’s not even considering the time it takes to recruit the perfect talent needed.
As the unemployment rate remains at a historical low, finding key employees to hire has never been more challenging. Many startup companies find themselves unable to recruit employees for crucial roles for months, sometimes even a year or more. When a job goes unfilled, the impact can be devastating to a small business. One very real, very attainable solution to this problem is to partner with a professional external recruiter. This individual’s sole purpose/job function is to find the specific talent needed to make your business successful. As a business owner, the goal is to make the business successful. That being said, recruitment is only one piece of the overall puzzle, albeit a very important one.
There are so many obstacles to overcome when starting any new business. Even those most successful would admit that they are probably not experts at every level, every area, every different component needed to pull it all together. If understanding the importance of hiring the right team would increase the likelihood of organizational success, why would you not consider investing in this key area? The saying “leave it to the professionals” would certainly apply here, and if it exponentially increases the odds of your startup being one of the few success stories, then it seems like a pretty good business strategy.